Bottom Up Budgeting is a budgeting method where departmental managers submit budgets and the aggregate view presents the final budget. Senior management will then review the consolidated budget and work with department heads to fit into organisation requirements. This typically gives a richer view of the budget than a top down budget approach.
Delegation and ownership – giving department managers control of the budget process increases employee participation in the budget process and ownership. Managers have operational knowledge and are able to fit the budgets to what their departments need to succeed. Once the budgets are set they are more likely to follow the budget as they formulated the plan in the first place.
Employee motivation – as departments have greater influence in the budgeting process it is likely they will be more motivated to carry out the budget plan. Greater motivation leads to higher morale, job performance, commitment and satisfaction.
Suitability for larger organisations – bottom up budgeting fits into larger organisations where local/ department managers have greater awareness of customer behaviour, preferences and outputs than top management.
Accuracy – bottom up budgets tend to be more accurate than top down because they are prepared by employees and managers who are closest to the source of revenue and have expertise/ knowledge that upper management may not. Resource predictions and product/ sales forecasts are precise meaning that all individual department budgets should be of high quality.
Coordination and communication – with budgets being completed by department managers there is greater communication between department managers and upper management. This allows top managers to communicate overall budget expectations and report back any issues or problems. Employees have an opportunity to discuss budget concerns with department managers as part of the wider process meaning specialist local knowledge/ expertise is shared in the budget.
The second part of our Bottom-Up Budgeting analysis will investigate how we can take advantage of IBM Planning Analytics and Cognos TM1 to perform a bottom-up budget utilising Microsoft Excel as the front end to our application.